RSR Research: Supply Chain is Alive and Kicking and Taking Aim at Merchandising

Through a special arrangement, what follows is a summary of an article from Retail Paradox, RSR Research's weekly analysis on emerging issues facing retailers, presented here for discussion.

If there was any part of the supply chain that you could assume is "done," it would be warehouse design — talk about a well-understood problem with some fairly straightforward math and modeling required to solve the problem.

So why did a presentation by Fortna, a supply chain design and implementation firm, on the current state of warehouse design at the recent Manhattan Associates' Momentum conference in Las Vegas draw a standing-room only crowd? Because omni-channel changes everything.

In talking with Fortna executives after the presentation, we came to the conclusion that distribution network redesign these days is an exercise in optimization where 99 percent of the constraints we used to use in planning out a distribution network design have been blown up. In trying to address the shift in product distribution brought about by either enabling cross-channel fulfillment or more holistically trying to make every piece of inventory available to be sold in any channel, retailers have to almost literally start with a blank piece of paper. Everything that they knew about slow movers vs. fast movers, dedicated e-commerce and retail distribution vs. mixed fulfillment — it's been thrown out the window by the shopper.

From a merchandising standpoint, the whole planning process is facing an overhaul. By opening up inventory across all channels, retailers are starting to get a much better understanding of the real "depth of demand." And when they start tracking — really tracking — the missed opportunities that occur because of mismatched demand and supply, they find that they're missing way more than they thought they were. It impacts both overall buy as well as where to place that buy to best meet demand. And it definitely means a return to the arm-wrestling that occurs between planning bigots and execution bigots.

Right now, in retailers that have virtual pools of inventory available to every channel, execution is saving planning's bacon — the misses are bigger than they realized, and it's only by being able to tap other channels' inventory that retailers are able to close the gaps. Will planning get smart enough to incorporate these misses to plan better next time? Or should they even bother? If they get close, execution can take it the rest of the way.

Let the arm-wrestling begin!

• Supply Chain is Alive and Kicking, and Taking Aim at Merchandising - RSR Research